You’ve saved $250,000 and want to know how to invest it wisely. Reaching this number is a huge accomplishment, so congratulations. It took a lot of discipline and hard work to earn this amount, and with continued hard work and discipline, you can grow your $250,000 even further.
If you keep your money in a high-yield savings account at the bank, your money will likely earn a good return, but keeping that money in a bank account is not necessarily the best option.
With a balanced and diversified investment strategy, your quarter million dollars can achieve a 7 to 10 percent return on investment. Or even higher.
There are many ways to invest $250,000, from purchasing land to picking individual stocks in a business you like.
The best ways to invest $250,000
Here are seven different options to consider when investing $250,000.
1. Work with a financial advisor
Talking with a financial advisor about ways to build an investment portfolio may be the smartest thing to do.
They can provide broader guidance on different investment products such as ETFs, stocks and bonds, explaining the volatility and risk-reward balance of different options.
On a personal level, an advisor can help you determine how much money you will need to achieve your short- and long-term goals, and allocate appropriately so you can minimize risk and get the best returns.
JP Morgan Personal Advisors can create a customized plan to meet your savings and investment needs and provide ongoing expert guidance. There is a starting annual fee of 0.5 percent for a wallet balance of $250,000 or more, but it is now waiving the fee for the first six months.
Investment and insurance products are: Not a deposit • Not FDIC insured • No bank guarantee • May lose value
2. Build an emergency fund
Most experts recommend that you have enough money set aside to cover at least three to six months of living expenses, which is called an emergency fund. Others, like famous money expert Suze Orman, insist you need at least eight to 12 months.
Money should be easily accessible so you can withdraw it immediately, but that doesn’t mean you need to store your money under your mattress or in a low-interest savings account at the bank.
Here are some other options for saving for a rainy day fund so that the money is readily available but still yields a decent rate of return.
- Certificate of Deposit (CD): These are deposit products where the bank or credit union will hold your money, in a certificate of deposit, for a specified period of time. The institute will then pay a fixed annual interest amount to the account holder.
- Money Market Account (MMA): A money market account is a type of savings account offered by banks and credit unions. Up to $250,000, funds are insured by the FDIC (for banks) or NCUA (for credit unions). Your financial institution may limit the number of monthly withdrawals allowed.
- High Yield Savings Account: It offers a better return on investment than a typical savings account, which has APYs of about 1 percent or less.
- I bond: I Bonds issued by the US Treasury are savings bonds that earn interest and protect the consumer from inflation. If you purchase I bonds issued between November 1, 2023 and April 30, 2024, you will receive an annual yield of 5.27% for the first six months.
3. Open an IRA
IRA is a common financial abbreviation that stands for “Individual Retirement Account.” It provides you with a tax-free way to save for your retirement.
If you put $5,000 into an IRA today and didn’t touch it for 30 years, that amount would grow to $50,313 assuming an average annual rate of return of 8 percent.
Ideally, you want to keep investing more money each year until you reach retirement, so increase your initial deposit to a healthy 7-figure amount.
There are three different types of IRAs:
- Traditional IRA: You make pre-tax contributions and the invested money grows tax-deferred until you withdraw it during retirement.
- Roth IRA: Contributions are made in after-tax dollars and the money can grow tax-free. When money is withdrawn for retirement, you do not have to pay taxes.
- Rollover IRA: This happens when you contribute money that you have “rolled over” from a qualified retirement plan to a traditional IRA.
4. Stock market investments
The most common forms of stock market investments are individual company stocks or bonds, index funds, mutual funds, and exchange-traded funds (ETFs).
In some cases, they may even pay dividends.
These options provide you with a variety of ways to buy a company’s bonds or shares, or baskets (groups) of stocks and bonds. The baskets are generally designed to match or exceed the overall performance of the Standard & Poor’s 500 Index (S&P 500).
The S&P 500 index includes the 500 largest publicly traded companies on the U.S. stock exchange. Since 1957, the S&P 500 has seen an average annual return on investment of 10.25%.
To get started investing, you can open an online brokerage account or work directly with a personal advisor at a financial management company.
There are also robo-advisor options, such as Betterment, Wealthfront, or Acorns.
5. Real estate investment properties
Investing in land or real estate has great potential for growth, and can help you build a more diversified portfolio outside of stocks, bonds, and other similar assets.
Rental properties such as multifamily or single-family homes can generate monthly rental income and then eventually capital gains when the property is sold at a profit. If you don’t want to play landlord, there are property management companies that can handle all of these obligations for you.
In addition to purchasing the property outright yourself — which raises a lot of capital and brings significant risk — you can invest in commercial or rental properties through real estate investment trusts (REITs) and crowdfunding applications.
Real estate investment funds
REITs are companies that own or finance income-producing properties in a range of real estate sectors. Although there are risks, most REITs are traded on major exchanges, and historically they have had an excellent track record and outperformed U.S. stocks more than 56 percent of the time.
Real estate crowdfunding applications
Real estate crowdfunding investment apps are another option. Groundfloor, Crowdstreet, HappyNest, and AcreTrader are four popular apps out of many to consider. These apps have a minimum requirement to join, and you can invest in home flippers, rental housing, commercial real estate, and publicly traded REITs.
6. Peer-to-peer (P2P) lending.
Peer-to-peer lending is an alternative to traditional loans that a consumer obtains from a bank, credit union, or even from loan companies such as payday lenders.
Here, groups of individuals (investors) finance consumer loans. In general, consumer borrowers have less than perfect credit but may demonstrate adequate creditworthiness overall when considering their employment history, income, and other factors.
You don’t need a million dollars to invest. Only $25 is needed to invest in many P2P loan offers.
Investing in P2P lending can generate very healthy interest rates. Figures vary widely regarding potential returns, but most appear to fall between 3.5 and 15 percent. Popular P2P lender, Upstart, has an average total return of 11.2 percent.
In addition to Upstart, other P2P lending programs include:
- How
- Thrive
- Solo boxes
- Lending Club
7. Alternative investments
Besides stocks, bonds and the real estate market, there are many other investment alternatives you can explore.
- Infrastructure: These investments are a branch of real estate. It involves ownership of real estate that generates value, such as owning a cell phone tower, an oil rig, or part of an oil pipeline.
- Precious metals: This asset class contains gold, silver, palladium, platinum, rhodium, copper and other precious metals. (Some of these metals may also be considered commodity metals.)
- fine arts: Invest in fine art and future DaVincis with art investing apps like Masterworks. Masterworks says contemporary art has seen an average annual return of 14.1 percent over the past 26 years.
- Collectibles: Beyond fine art, rare coins, rare stamps, precious gemstones, comic books, watches, and Fabergé eggs.
- Goods: They are goods that are interchangeable with each other, regardless of the product. Coffee, wheat oil, natural gas, and even livestock are also examples of commodities. It is traded through futures contracts.
- Cryptocurrencies: You can invest in virtual currencies such as Bitcoin, Ethereum, or Tether. You can buy cryptocurrencies directly through a cryptocurrency exchange like Kraken, Coinbase, or Binance, or on fintech investing apps like SoFi or Robinhood.
These unconventional investments have the potential to deliver higher returns than the stock market and can diversify your investment portfolio. Additionally, commodities tend to perform very well during inflation.
But these alternative investments are riskier than traditional options and it may take longer to see any return.
Additionally, these assets are illiquid, which means they tie up your cash flow and may be difficult to value. Estimated market values are known to fluctuate significantly from the actual sales price.
Frequently asked questions
What does long-term investing mean?
Long-term investing usually refers to a period of five years or more. So, if you’re going to invest in Apple, Amazon, or any other tech company for the long term, you’ll plan to hold the shares for at least five years before selling.
How much interest will $250,000 a year earn?
In a high-yield savings account, $250,000 could earn $6,250 at a 2.5 percent return. Although you can find higher-yielding savings rates, they typically come with balance limits (for example, interest paid for balances up to $50,000) or may only be offered to you for the first year.
By contrast, if you invested $250,000 in the stock market, you could see an annual return of $12,500 to $25,000.
Is $250,000 too much to have in savings?
Maybe yes. In case you have a rainy day, you want to have anywhere from 3 to 12 months left in your savings account.
According to the U.S. Bureau of Labor Statistics (BLS), the average family has total monthly expenses of $5,577.33.
This means $250,000 is enough to keep the average family afloat for more than 44 months, while experts suggest they need to allocate between $16,732 to $66,928 to weather for 3 to 12 months.
If you hide more money, you miss out on excellent investment opportunities.
What happens if you have more than $250,000 in savings?
In addition to being lucky enough to have that kind of cash, a deposit worth more than $250,000 is not protected by the US government. If the bank fails, you could lose your money.
The Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Association (NCUA) insure deposits up to $250,000.
Can you retire with $250,000?
This amount may not be enough for a traditional retirement, where you can stop working completely for two decades or more. But by following the 4 percent rule, $250,000 might be enough for a modest retirement supplemented by a part-time job or other side hustle.
The 4 percent rule means you can withdraw 4 percent of your retirement savings during your first year of retirement, then the same amount every year after that but in subsequent years the amount will be adjusted for inflation.
This means you would have had $10,000 per year during your first year of retirement, or $833.33 each month. If you are a worker in $1,781.63the average Social Security benefit for an American retiree, you will have $2,614.93 per month.
How should you invest $250,000?
You’ll find many ways to invest your $250,000 so you continue to make more money every year, build financial freedom and reap the sense of security it brings.
But make sure to be smart about how you invest your money. Do your due diligence and consider the different options, and how they fit into your long-term and short-term savings goals.
For everyone, whether new investors or seasoned investors alike, it is always best to consult a financial advisor.